Nov. 26 (Bloomberg) -- The Chinese government started
investigating whether foreign suppliers of polysilicon are
selling below cost in China, the world’s biggest consumer of the
raw material used in making solar-energy devices.

The Chinese Ministry of Commerce said it will determine if
retroactive duties, or penalties, should be imposed on the
suppliers from the U.S., the European Union and South Korea. It
will also probe whether the U.S. and EU are subsidizing makers
of the silicon-based commodity, according to a statement today.

China is expanding the trade disagreement between the
world’s biggest economies as the global solar-energy industry
grapples with overcapacity, lower prices and declining profits.
The stakes were raised this year when the U.S. imposed duties on
Chinese-made solar cells and the EU began probing whether
Chinese manufacturers are selling cells and panels at a loss.

Chinese tariffs would hurt both foreign polysilicon
manufacturers and domestic wafer and panels makers, Sean
McLoughlin, an industry analyst at HSBC Bank Plc, said by phone.
“Tariffs would force foreign poly producers to lower prices
even more while domestic manufacturers of wafers and panels
would have to pay more or use locally-sourced polysilicon,” he
said.

The ministry asked Korean and U.S. suppliers to provide
monthly data within 15 days on the amount and value of the raw
material they sold to China this year. Those from the EU were
asked to give data from May.

Companies Targeted

Duties on the key material for solar panels would affect no
less than four out of the five largest solar-component
manufacturers, which are based outside China and cover more than
75 percent of global demand. The biggest polysilicon producer is
China-based GCL-Poly Energy Holdings Ltd., which could benefit
from Chinese import duties, followed by South Korea’s OCI Ltd.,
Hemlock Semiconductor Corp. from the U.S., Germany’s Wacker
Chemie AG and Norway’s Renewable Energy Corp., Bloomberg New
Energy Finance data show.

The levies could also affect Chinese makers of polysilicon
wafers and the solar panels made from them, which supply about
65 percent of the products globally. In contrast, Chinese
producers hold about 25 percent of global polysilicon capacity.

GCL-Poly fell 3 percent today to close at HK$1.30 a share
while OCI shares were unchanged at 146,500 won a share in Seoul.
Wacker closed down 2.4 percent at 43.2 euros a share in
Frankfurt and Renewable Energy Corp. closed 4 percent lower at
0.67 kroner in Oslo. MEMC rose as much as 2 percent before
trading 1.2 percent higher at $2.60 at 11:48 a.m. in New York.

Suffering Badly

“The big problem with imposing high import tariffs would
be that it would hurt Chinese wafer makers - which still need to
import feedstock - badly, a consideration likely to make the
government pause,” Jenny Chase, BNEF’s head of solar analysis,
said by e-mail. “With the polysilicon spot price at an all-time
low, manufacturers worldwide are suffering badly and would argue
that they need to drop prices this low just to keep selling.”

Polysilicon spot prices have tumbled almost 38 percent this
year to a record low after dropping by two-thirds last year. The
average spot price was down at $17.09 a kilogram last week,
according to a BNEF survey.

Chinese Premier Wen Jiabao urged the EU in September to
avoid erecting trade barriers amid its threat to impose tariffs
on solar panels from China. Earlier that month, the union opened
a probe into whether Chinese manufacturers sell solar panels
below cost, a practice known as dumping. On Nov. 8, the EU
opened a second inquiry to see if Chinese exporters receive
trade-distorting government aid.

The inquiries, which are the biggest European trade dispute
of its kind, cover 21 billion euros ($27 billion) of imports of
crystalline silicon photovoltaic modules and the cells and
wafers used in them, according to EU officials.

In October, the U.S. Commerce Department set anti-dumping
duties ranging from 18 percent to 250 percent on solar-energy
cells imported from China, and anti-subsidy penalties of about
15 percent, confirming a preliminary ruling earlier in the year.